4 Foundational Pillars of Crypto: What Should I Invest?
DISCLAIMER: This is not financial advice and please don’t invest any money you aren’t willing to lose
Think of your cryptocurrency portfolio as a chair. With the sturdiest of legs being able to hold and handle any weight placed on top. Ironically, the same number of legs corresponds to my self proclaimed “4 foundational pillars” that are at the center of my portfolio, have generated substantial gains, weathered volatility and provide a strategy/diversification for investing. This also provides a good starting point for a beginner portfolio with a more conservative risk aversion approach. In the following piece I will show these “4 legs” and also provide my percentage allocation as well.
Whether you like it or not, Bitcoin (BTC) is KING of crypto for a reason. One of the main reasons is it being the 1st decentralized cryptocurrency ever developed in conjunction with the blockchain back in January 2009 by Satoshi Nakamoto. It was developed primarily to allow “online payments to be sent directly from one party to another without going through a financial institution.” What makes Bitcoin (BTC) unique is also its advantage and the reason why it should be at the top % allocation for your portfolio. Scarcity. Unlike other cryptocurrencies, BTC has a MAX supply of 21,000,000 coins EVER produced with around 18,500,000 coins already in existence. As Bitcoin is mined, this supply pushes the price up per each Bitcoin. It’s a simple supply and demand economics class all over again with substantial gains and consistency.
Ethereum (ETH) is 2nd on the list and one of the most important components of crypto/blockchain environment. Where Bitcoin (BTC) is the currency type, Ethereum is an actual platform that cryptocurrencies operate on as well as decentralized applications and NFTs (non-fungible tokens). Almost everything runs on the Ethereum network that is crypto related and has pioneered the concept of a smart chain blockchain platform. This piece of technology is not going any where and in fact has been going through upgrades (such as with EIP-1559) with a major one into 2022 for its Layer 2 solution which will handle more transactions and better scalability.
One of the major differences between Bitcoin and Ethereum’s economics is that the latter is not deflationary, i.e. its total supply is not limited. Ethereum’s developers justify this by not wanting to have a “fixed security budget” for the network.
With the introduction of EIP-1559 however, the base fees used in transactions are burned, removing the ETH from circulation. This means higher activity on the network would lead to more ETH burned, and the decreasing supply should lead to appreciation of Ethereum price, all things equal. Again supply and demand. Ethereum is a substantial component of crypto and the blockchain period & has been since 2015.
Like with my statement on the 2nd leg being “everything runs on Ethereum”, with Chainlink (LINK) everything runs through it. It is often considered
an THE Oracle in the blockchain and was founded in 2017 with its focus being in the data processing field and allowing integration of off-chain data into smart contracts (*cough* Ethereum *cough*) to securely interact with external data feeds, events and payment methods. Another item that drives this Chainlink is its open source community of developers, researchers, security auditors and data providers. Just as with Ethereum, there will always be a need for Chainlink and with the further adoption of smart contracts & layer 2 solutions, it will grow even more. This is one of my favorite coins in particular because of the actual need & also because I can accumulate these more because of its low price point currently. To further this point:
“Chainlink is an indispensable oracle network that provides blockchains like Ethereum, Matic Network, Hedera Hashgraph and the Binance ecosystem with real-time information. With high-profile partners that include Google, Chainlink is a promising system that looks like it will continue to introduce exciting innovations to the crypto and blockchain space.”– CoinmarketCap
The 4th and final leg of your portfolio should include Litecoin (LTC). Sound familiar? It should, as LTC is a FORK (see below) of BTC
“In software engineering, a project fork happens when developers take a copy of source code from one software package and start independent development on it, creating a distinct and separate piece of software.”
So in this essence, Litecoin’s project code was literally copied from Bitcoin and then modified……but why? In October 2011, Charlie Lee developed Litecoin as a faster and cheaper alternative to Bitcoin. Think of BTC as “digital gold” and LTC as “digital silver”. I can also vouch for the cost and speed as this was one of the first cryptocurrencies I used to make a purchase and also transfer funds. I was particularly amazed at the lower fees associated with this coin and the under 1 minute downtime to complete a transfer. ESPECIALLY when compared to Bitcoin. This makes it an attractive alternative to BTC in developing countries particularly where the transaction fees could be the deciding factor on choosing which currency to support. As of January 2021, Litecoin is one of the most widely accepted cryptos with more than 2,000 merchants and stores accepting it worldwide. As with all 3 prior legs mentioned, there is a need for Litecoin and always will be.
The good thing about this group of coins is that they typically “travel” together and you can own more of some of the alternatives vs Bitcoin. This allocation strategy I have used when I began my journey in crypto to build my portfolio up to a satisfying point where I could delve into other alternative coins, still maintain respectable gains and not be concerned with my volatility as these 4 coins have weathered the storm of the market and are still needed, applicable and have legitimate use cases to this day, as well as into the future for the blockchain. I admittedly still use this to this day, still playing around with percentages & tweaking where needed.
Feel free to drop a comment and let me know what your favorite coins are.
Hotep & Build ✌🏽